John Deere, the world’s largest maker of agricultural machinery, on Tuesday announced plans to cut production next year and cut its earnings outlook in the wake of slowing sales in Australia and South America.
The US group, which also produces construction equipment, reported record profits for its fiscal year to October 31, but cut its 2007 forecast in the wake of droughts that have affected its domestic market and decimated the Australian wheat harvest. It expects sales in Australia to fall by a quarter next year.
Deere had already cut its guidance for its fiscal fourth quarter, and the 2007 forecast for profits of $1.325bn equates to around $5.69 a share. Analysts have been trimming their own estimates in recent weeks from a peak of more than $7 a share, before uncertainty over crop-planting plans and the weakness of the construction market led to a series of revisions.
Deere said the global outlook for “farm-economic conditions remained quite promising”, based on buoyant commodity prices and rising demand for renewable fuels.
However, it cited the need to reduce inventories and uncertainty over the impact of new US farm legislation next year on farmers’ planting and investment plans. It expects sales in the US and Canada to be flat next year, and will cut production of agricultural equipment by 4 per cent to trim excess supply.
Global sales of agricultural equipment are expected to rise 4 per cent in fiscal 2007 after a 3 per cent increase this year, with demand in Europe countering the relative weakness in other markets.
Deere shares were 2.7 per cent lower at $86.99 in early New York trading.